Tax, Trade & Customs Update: Court Affirms GST Exemption Without Fixed Establishment

In the recent case of Syarikat Pembinaan D.S.R. Sdn Bhd ("Taxpayer") v Director General of Customs and Excise [Civil Appeal No. K-01(A)-58-02/2023], the Taxpayer successfully appealed to the Court of Appeal against the High Court's decision, which upheld the Director General of Customs and Excise’s ("Customs") refusal to give effect to the exemption under section 155 of the Goods and Services Tax Act 2014 (“the Exemption”). Under section 155, taxable supplies of goods or services made within a “designated area” (i.e. Labuan, Langkawi and Tioman) are exempted from goods and services tax (“GST”). 

Customs’ position was that the Taxpayer was not entitled to the Exemption purportedly on the basis that the Taxpayer did not maintain any "fixed establishment" in the designated area, notwithstanding that the nature of the construction work undertaken meant that the services could only have been performed and supplied at the construction site located within the designated area.

The Court of Appeal unanimously ruled in favour of the Taxpayer and held that the Taxpayer was entitled to the Exemption as the supplies were made in a designated area. In rejecting Customs' interpretation, the Court held that the Exemption does not require a taxpayer to be established, or to maintain a branch or fixed establishment, in a “designated area”. Rather, the operative words in section 155 relate to the location of the act of supplying the goods and services.

Prior to this case, the Taxpayer had also succeeded before the Court of Appeal in Director General of Customs and Excise v Lam Ah Company Sdn Bhd [Civil Appeal No. P-01(A)-836-11/2022] on the same issue, where the Court of Appeal unanimously held that the Exemption applied to the Taxpayer and there was no requirement for a fixed establishment to be established in Langkawi before he may avail himself of the section 155 Exemption. 

The Taxpayer in this matter was represented by Irene Yong (Partner), Chantal Leann Barnabas (Associate) and Nicole Wan Zhiyi (Associate), from our Tax, Trade & Customs Practice Group.

This update is prepared by Nicole Wan Zhiyi.

THIS UPDATE IS ISSUED FOR THE INFORMATION OF THE CLIENTS OF THE FIRM AND COVERS LEGAL ISSUES IN A GENERAL WAY. 

THE CONTENTS ARE NOT INTENDED TO CONSTITUTE ANY ADVICE ON ANY SPECIFIC MATTER AND SHOULD NOT BE RELIED UPON AS A SUBSTITUTE FOR DETAILED LEGAL ADVICE ON SPECIFIC MATTERS OR TRANSACTIONS.